Cliff Hanger

With industrial production, capacity utilization, real disposable income, real personal consumption, real sales retail and food service sales, and real manufacturing and trade sales uniformly declining in their latest reports, coincident economic indicators – having generally peaked in July – are now following through on the weakness that we’ve persistently observed in leading economic measures. We continue to believe that the U.S. economy joined a global economic downturn during the third quarter of this year.

While we use a broad range of signal extraction and noise-reduction methods in our own work, the economic data in recent months has required less and less sophisticated analysis, as many of the most reliable leading economic measures have turned clearly lower (e.g. Philly Fed Index, Chicago Fed National Activity Index, and the new orders and order backlog components of numerous regional and national Federal Reserve and purchasing managers surveys). Still, the leading/coincident/lagging relationships across these indicators remain important. Not surprisingly, analysts have now turned to the last refuge of the economic data, which is to focus on historically lagging measures such as payroll employment.

While the past few weeks’ economic numbers have tended, not surprisingly, to trace the economy’s recovery from the superstorm, it emerges that consumers have turned parsimonious again. Their outlays, far from setting any worlds on fire, actually contracted a fraction or two, along with the size of their paychecks. Besides the littered legacy of Sandy, consumer-price increases, and the fear and loathing of the fiscal cliff merit a chunk of the blame.

Our precarious perch, which is a great place to watch the fiscal drama unfold, unfortunately provides no clear view of what might transpire between now and the end of the year, when the draconian fiscal measures are due to become law unless the fractious powers-that-be come up with some desperate plan that would win the nod to avoid the encroaching cliff and a conceivable lapse into recession.

I don’t know whether the economy will grow slowly, contract, or expand next year (Yuval Rosenberg suggests that it’s not a question of whether the economy will grow slowly but how slowly). I do know that recoveries don’t go on forever and, phlegmatic, even imperceptible to many of us as the present recovery has been, it, too, will draw to a close.

They say that step one is admitting you have a problem. Are we there yet?

But, but , but, we were told that the economy was in ‘recovery.’ At least this was the before-the-election meme. Remember that great and out-of-nowhere EU number that materialized at the end of September? We were also told not to worry about sequestration, that Obama wouldn’t let it happen. The fiscal cliff? Not to worry, Obama has a plan — the same one that was rejected by every single member in Congress, not too long ago.

We were told that the ME terrorists were “on their heels and on the run”, that the Benghazi murders were unexplainable, with about a half dozen stories swirling around as to what really happened there, and what part the WH played in it’s ill-fated outcome.

We were told that the ACA would cost ‘X’ amount of money, and now it is projected at 3xs that amount and climbing. We were told that we had to pass the bill to find out what was in it, with the implication being that we would all love it. We were told that insurance rates would come down and they have gone up.

We have been told a lot of nonsense, IMO, and the public bought it, hook, line and sinker!

Slow growth, unless Europe tips us over. We should have some pent up demand (look at car sales), but balance sheets still weak. Still not sure what is going on in China and India.

@jan- Those numbers about the ACA were well known. Health care in 2023 will cost more than it did in 2014. The latest, or one of the latest, CBO reports predicts costs will be lower than anticipated. (Always read the original CBO reports when you can.) The EU (UE?) number was the same thing that happens every year at that time because of the way they calculate unemployment.

But hey, Obama has Boenher checkmated and can blame the Republicans!!!! Its all good. Who cares is another recession puts more people out of work and makes it even harder for those still unemployed from the last recession to find work. Ask Michael who was positvely chortling with glee a few posts down about it.

I’m glad you were able to get such a good health care policy. However, I’ve talked with people who have had their premiums increase, much like this article relays: Health insurance premiums skyrocket.

Steve,

Supposedly car sales are good because of the vehicle loss during Sandy. Also, there have been mixed opinions about the UE lowering to 7.8% in September. However, I continue to view 800,000 as a sudden job number with suspect.

jan- No mixed opinions among those who know how they calculate UE. The right wing economists were silent on the issue you should note. Only the (ignorant) pundits made it an issue. On the car sales, Drew and Verdon said hurricanes have no effect.

I heard about the cause and effect of the higher car sales on the news. And here is just one link from Daily Finance saying the same thing —> Hurricane Sandy boost car sales in November. I also remember hearing that cars were in such shortage, over Thanksgiving, that rental car companies were having trouble supplying enough cars for the traffic of people that weekend.

Regarding the UE drop: Gallup came out and disputed the Household Survey numbers, that provided the basis for the UE to drop below 8%, as being numbers that should be discounted, due to their volitility and unreliability, over the the more stable payroll survey numbers that were a mere 114,000.

@jan- Absolutely. The household numbers come out whacky that time of the year just about every year. Economists know that. Pundits on the right tried to turn it into a conspiracy. Note that economists on the left were not claiming that we really an 800k drop, they were citing the lower number.

Experienced economist and not so experienced economist are walking down the road. They come across a pile of horse manure lying on the asphalt.

Experienced economist: “If you eat it I’ll give you $20,000!”
Not so experienced economist runs his optimization problem and figures out he’s better off eating it so he does and collects money.
Continuing along the same road they come across another pile of horse manure.
Not so experienced economist: “Now, if YOU eat this I’ll give YOU $20,000.”
After evaluating the proposal experienced economist eats it and collects the money.
They go on. The not so experienced economist starts thinking: “Listen, we both have the same amount of money we had before, but we both ate horse manure. I don’t see us being better off.”
The experienced economist replies “Well, that’s true, but you overlooked the fact that we’ve been just involved in $40,000 of trade.”